The dividend belongs to the share like interest belongs to the fixed-term deposit. The consumer advice center has collected frequently asked questions about dividends. Here you will find the answers.
Companies that have managed to pay regular dividends to their shareholders for decades are proud of it and advertise it. Foundations and entrepreneurial families rely on their annual dividends. And it is also important for many small investors.
What is a dividend?
The dividend is the part of the profit that a stock corporation distributes to its owners – i.e. to the shareholders. That's why stocks are sometimes called dividend stocks.
How often is the dividend paid?
Most companies pay a dividend once a year.
Others distribute part of their profits over the course of the year – for example, they pay a dividend every quarter.
And finally, there are the companies that pay no dividend at all. This may be because they simply don't make any profit to distribute. But it can also be strategy. Such a strategy can be useful for various reasons. One reason: the assumption that the money will achieve a higher return if you leave it in the company and use it there for investments. Another: possible tax advantages for shareholders.
What types of dividends are there?
It is common practice to distribute profits as a cash dividend: a predetermined amount is credited to the shareholder's account for each share.
There is also the so-called stock dividend. “Stock” is the English word for share. A stock dividend refers to the distribution of a dividend in the form of shares. Instead of cash in the account, a shareholder has additional shares in his company in his portfolio after such a distribution.
In some cases, companies also pay out dividends in kind. This is usually in addition to the cash dividend. These could be products or discounts on the company's products or services.
Who decides whether a dividend is paid?
The owners themselves – at the annual general meeting of their joint stock company. Before that, however, the board makes a dividend proposal. Shareholders mostly agree to this proposal. Normally the dividend is distributed directly on the day of the general meeting.
What do I have to do to have the dividend credited to me?
Nothing. It will be automatically posted to your account. However, it is possible that you will have to apply to convert the cash dividend into a stock dividend – if your company offers this option (and you want to take advantage of it).
Is it worth buying the stock because of the dividend the day before the distribution and then selling it straight away?
No. The stock market is not that easy to outsmart. When the dividend is distributed, the share is traded “ex-dividend”, i.e. without the distributed amount. The price of the share falls accordingly.
But maybe it's worth speculating that the share price will fall because of the dividend payment?
No, that's not worth it either. The providers of warrants and certificates, with which private investors can speculate on falling prices, include the dividend payments in the prices of the speculative instruments. This means that such securities do not rise because of the dividend distribution.
What is the dividend yield?
The dividend yield is a key figure for evaluating stocks. It is obtained by dividing the amount of the dividend per share by the share price and multiplying the result by 100.
Example: Muster AG wants to pay a dividend of one euro per share soon. The share price is 50 euros. The dividend yield is therefore exactly 2 percent.
Many investment strategies place particular importance on dividend yield, and there are a number of funds that invest in stocks with particularly high dividend yields.
The fact that a stock has a high dividend yield does not necessarily mean that it is a particularly profitable investment: market participants may expect the company's profits (and therefore also the dividends) to be lower in the future. Or, conversely, they expect that companies that have not yet paid any dividends will make particularly high profits in the future and pass them on to investors.
So there are many reasons not to rely (only) on this key figure if you want to buy stocks or stock funds.
Where can I find information about the dividend of my shares?
The dividends paid in recent years are listed in various financial portals on the Internet.
In addition, estimates of the amount of future dividends are often published. The estimates are based on forecasts from stock analysts. These should be treated with caution, after all, no one knows the future – not even the best paid experts.
What do stock funds do with the dividends paid to them?
Stock funds initially accumulate dividends. Then you pass them on to the shareholders. This can be done through a distribution. In this case, money actually flows into the fund owners' accounts. Or it can be done through accumulation. In this case, the fund reinvests the dividends received and the price of an individual share increases accordingly.
